Merger and Acquisition (M&A) transactions are economic transactions that take place between two or more companies to become a single entity. Mergers are combinations of two companies while an acquisition means a takeover of a company's assets and liabilities by another company. Merger and acquisition transactions are not always amenable transactions between the two companies that are involved and can be hostile takeovers or leveraged buyouts.

Such transactions are entered into in order to increase the market power and reduce competition, or for more economical reasons such as savings of cost, sharing infrastructure, and complementary resources. Finally, M&A transactions can open up new markets which in turn can help in increasing revenue and growth opportunities.

On the other hand, M&A transactions have a significant impact on the companies' employees and management and can lead to job losses. M&A transactions can negatively affect the parties involved as certain positions may be eliminated due to redundancy.

To combat this repercussion of M&A transactions, labour laws were put into place in every country. Such laws safeguard the interests of employees and offer them legal protection against the impacts of an M&A.

Following is a description of the labour laws relating to M&A transactions in various countries:

United States

In the United States, labor laws related to merger and acquisition (M&A) transactions are primarily governed by the Worker Adjustment and Retraining Notification Act (WARN) and the National Labor Relations Act (NLRA).

The WARN Act applies to employers that are engaged in a merger or acquisition that results in a plant closing or mass layoff. The WARN Act requires employers with 100 or more employees to provide at least 60 calendar days of advance written notice to affected employees prior to a plant closing or a mass layoff. A plant closing is defined as the permanent or temporary shutdown of a single site of employment that results in an employment loss for 50 or more employees during any 30-day period.

A mass layoff is defined as a reduction in force that results in an employment loss at a single site of employment during any 30-day period for 500 or more employees, or for 50-499 employees if they make up at least 33% of the employer's active workforce. If the acquiring company is considered a successor employer under the WARN Act, it may be held responsible for complying with the notice requirements.

The NLRA protects employees' rights to unionize and engage in collective bargaining. In the context of an M&A transaction, the NLRA may come into play if the transaction involves a change in ownership or control of a unionized workforce. The NLRA requires the new employer to recognize and bargain with the union representing the workforce, and to honor the terms and conditions of any existing collective bargaining agreement.

It is important to note that other federal and state labor laws may also apply to M&A transactions, depending on the specific circumstances of the transaction.

European Union

In the European Union (EU), the Acquired Right Directive governs the labor laws related to merger and acquisition (M&A) transactions.

The Acquired Rights Directive requires that employees of a company being acquired must be informed and consulted about the transaction. This includes providing information about the legal, economic and social implications of the transaction, and consulting with employee representatives or trade unions. The purpose of this requirement is to ensure that employees are informed about the potential impact of the transaction on their employment.

Under the Acquired Rights Directive, employees also have the right to transfer to the new company on the same terms and conditions of employment. This means that the new employer is required to honor existing employment contracts, and employees cannot be forced to accept less favorable employment terms or be dismissed as a result of the transfer. The directive applies to transfers of an undertaking, or part of an undertaking, to another employer as a result of a legal transfer or merger.

In addition to the Acquired Rights Directive, EU labor laws related to M&A transactions may also be influenced by other EU directives or regulations, as well as national laws and regulations in individual member states.

It's important to note that the specific labor laws related to M&A transactions in the EU can vary depending on the specific circumstances of the transaction, and may be subject to interpretation by the courts.

China

In China, labor laws related to merger and acquisition (M&A) transactions come under the Labor Law of the People's Republic of China and the Regulations on Labor Dispatch.

Once again, employees have the right to be informed regarding the various aspects of the M&A, which ensures that employees are aware of impacts on their livelihood.

The Regulations on Labor Dispatch regulate the use of labor dispatch services in China. Labor dispatch refers to the practice of a third-party agency dispatching employees to work for a company. If the acquiring company in an M&A transaction uses labor dispatch services, it must ensure that the employees dispatched by the third-party agency receive the same treatment and benefits as the acquiring company's own employees.

In addition, the Labor Contract Law of the People's Republic of China requires that the acquiring company honor the existing employment contracts of the transferred employees. If the acquiring company wishes to change the terms and conditions of employment, it must negotiate with the employees or their representatives to reach an agreement.

Japan

In Japan, labor laws related to merger and acquisition (M&A) transactions are controlled by the Labor Standards Act and the Act on Securing, Etc. of Equal Opportunity and Treatment between Men and Women in Employment.

Similar to the countries above, the act requires that the employees of a company being acquired must be informed and consulted about the transaction, including the legal, economic and social implications. The purpose of this requirement is to ensure that employees are informed about the potential impact of the transaction on their employment.

The Act on Securing, Etc. of Equal Opportunity and Treatment between Men and Women in Employment requires that the acquiring company ensure that there is no discrimination against employees on the basis of gender, and that men and women are treated equally in terms of employment conditions, including pay and promotion opportunities.

In addition, if the acquiring company wishes to change the terms and conditions of employment, it must negotiate with the employees or their representatives to reach an agreement. If an agreement cannot be reached, the acquiring company may need to follow a formal consultation process and obtain approval from the labor standards office.

Labour Laws governing M&A in India

In India, rights of employees related to merger and acquisition transactions is majorly governed by the Industrial Disputes Act, 1947

According to Section 25FF of the Industrial Disputes Act, 1947, whenever the ownership of a concern is transferred to another owner, all workmen who have been in the employment of the previous owner are entitled to receive notice of such transfer of undertaking and compensation thereof.

There is a proviso to the aforementioned section which provides that the workers are not entitled to notice or retrenchment compensation if the following conditions are not met

1. The workman's service has not been disrupted as a result of the transfer
2. The terms and conditions of the worker is not any less favourable to him as a result of the transfer

However, in the case of Sunil Kr. Ghosh v. K. Ram Chandran, it was held that the old employer is required to take the consent of the employees regarding the transfer of ownership notwithstanding any change in their terms and conditions of work

According to Section 9A of the Industrial Disputes Act, 1947, if an employee's working conditions change as per Schedule IV of the ID Act, then they are entitled to notice of change in ownership 21 days prior to such transfer

Finally, employees are entitled to retrenchment compensation if they lose their jobs as result of the merger or acquisition. Retrenchment means termination of employment of an employee due to reasons other than indiscipline on the part of the employee. Section 25F of the Industrial D Act specifies the compensation that a company must pay in case it retrenches its employees as a result of the transfer of ownership

Conclusion
Labour laws have been monumental in protecting the rights of employees in several instances over the years. They establish a sense of equality where an employee is not at the mercy of the employer, reverting the oppression that employees faced in the history of trade and employment. Nevertheless, one should be careful that labour laws in all countries are very complex and subject to interpretation by courts. It is therefore safe to navigate these laws by consulting a local legal advisor. While the current laws are quite comprehensive, it is important for these laws to keep evolving according to the needs of society at global and domestic levels in order to continue serving their purpose.

References

1. Worker Adjustment and Retraining Notification Act, 1988
2. National Labour Relations Act, 1935
3. Acquired Rights Directive; Council Directive No. 77/187 of 1977
4. Labour Law of People's Republic of China, 1995
5. The Labour Standards Act, 1947 (Act No. 49 of 1947)
6. Act on Securing, Etc. of Equal Opportunity and Treatment between Men and Women in Employment, 1972 (Act No. 113 of 1972)
7. Industrial Disputes Act, 1947 (Act No. 14 of 1947)
8. Sunil Kr. Ghosh vs. K. Ram Chandran (2011) 14 SCC 320